SPECULATORS PLAY ROLE IN SHARPLY RISING OIL PRICES

Demand drops, exports rise, yet prices still surge

is down sharply from last year, so much that United States has actually become a net exporter of gasoline, unable to consume all that it makes.

Yet oil and gasoline prices are surging.

On Tuesday, oil rose past $105 a barrel and gasoline averaged $3.57 a gallon — thanks again in no small part to rampant financial speculation on top of fears of supply disruptions.

The ostensible reason for the climb of crude prices on the New York Mercantile Exchange, where contracts for future delivery of oil are traded, is growing fear of a military confrontation with Iran in the Persian Gulf’s Strait of Hormuz, through which 20 percent of the world’s oil passes.

Other factors driving up prices include last month’s bankruptcy of Petroplus, a European refiner, and a recent BP refinery fire in Washington state that’s temporarily crimped gasoline supply along the West Coast.

While tension over Iran has ratcheted up in the past few months, the price of oil and gasoline has leaped far beyond conventional supply and demand variables. Financial speculators are piling into the market, torquing the Iranian fear factor into ever-higher prices.

“Speculation is now part of the DNA of oil prices. You cannot separate the two anymore. There is no demarcation,” said Fadel Gheit, a 30-year veteran of energy markets and an analyst at Oppenheimer & Co. “I still remain convinced oil prices are inflated.”

Consider that light, sweet crude trading on the NYMEX changed hands at $79.20 a barrel just four months ago, but soared past $105 a barrel Tuesday, partly on news that Iran would halt shipment of oil to Britain and France. But those countries already had stopped buying Iranian oil. And Didier Houssin, the International Energy Agency’s director for energy markets and security, said that “there are alternative supplies that can make up for any loss of Iranian exports,” The Wall Street Journal reported.

Still, oil’s price shot up because it trades in financial markets, where Wall Street firms and other big financial players dominate the trading of oil, even though they have no intention of ever taking possession of the oil whose contracts they are trading.

Defining what percentage of today’s high oil and gasoline prices is due to excessive speculation is something of a guessing game.

“I put the Iran security premium at about $8 to $10 (a barrel) at this point, which still puts crude at about $90 or $95,” said John Kilduff, a veteran energy analyst at AgainCapital in New York.